Details on the service sector contraction (ISM non-manufacturing index drops)

The ISM Non-Manufacturing Business Activity Index measures the services part of the U.S. economy; this sector is important because our manufacturing base has been eroding. Today the index for January 2008 was released early due to a possible breach of information. It seems that the release of this number is waking CNBC and others up to the reality of the recession.

The index is down significantly for January (41.9% versus 54.4 % in prior month). Here’s a look at the detail behind the number. [Spoiler: the only industries reporting increased business activity in January 2008 were Utilities and Educational Services.] →

Here are the underlying details on the “New Orders” and “Employment” indices — also for the services sector:

“ISM’s Non-Manufacturing New Orders Index contracted to 43.5 percent in January, a significant reduction of 10.4 percentage points from the seasonally adjusted 53.9 percent registered in December. This is the first contraction of non-manufacturing new orders since March 2003 when the index registered 49.9 percent, and the lowest new orders index since it registered 40 percent in October 2001. Comments from respondents include: “Sluggish sales”; “Not as many opportunities”; and “Economic uncertainty.”

Employment

Employment activity in the non-manufacturing sector decreased in January for the first time in five months. ISM’s Non-Manufacturing Employment Index for January registered 43.9 percent, a 7.9 percentage point decrease from the seasonally adjusted 51.8 percent reported in December. One industry reported increased employment, 12 industries reported a decrease, and 5 industries indicated employment is unchanged from December. Comments from respondents include: “Did not replace some positions”; “Reduced headcounts with hiring freezes in place”; and “Layoffs.”

The only industry reporting growth in employment in January is Transportation & Warehousing. “